Yesterday, the price of FTX’s FTT cryptocurrency literally imploded, and Binance took advantage of the great opportunity.
Indeed, within a little more than three hours, it fell from $19 to $3, a loss of 84%.
However, its value did not drop to zero. Overnight it has since stabilized between $4 and $5, and thus it capitalizes over $600 million.
Until yesterday, though, it capitalized more than $2.5 billion, and back in March it capitalized $7 billion.
The cumulative loss so far from the all-time highs of September last year is close to 95%, meaning that to recover those levels it would have to make +1,700% from current values.
Binance: a strategy to bring down FTX (FTT)?
Yesterday, Binance stepped in to help FTX by offering to buy the rival exchange.
Indeed, yesterday FTX was forced to temporarily suspend withdrawals due to a lack of liquidity. We are talking about $6 billion withdrawn from the exchange within 72 hours.
Apparently, FTX did not have enough cash on hand to meet all the withdrawal requests, so it asked Binance for help.
Binance intervened, but despite its intervention, the FTT token still collapsed.
The most important news released yesterday by Binance CEO Changpeng CZ Zhao was that he was willing to acquire the global FTX exchange platform.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
FTX also has a platform dedicated specifically to Americans, FTX.US, though this did not become part of the deal with Binance.
CZ also mentioned that they will be doing Due Diligence (DD) of FTX in the coming days to see if the acquisition deal can go through or not. Thus, Binance has actually only announced its intention to acquire the rival exchange, but has not yet done so. Moreover, the FTX US platform will have to continue to fend for itself.
For these reasons, investors and speculators have continued to dump FTT tokens on the market.
It is enough to say that before CZ’s tweet, the price of FTT had fallen from $17.5 to $14.5, while afterwards it had risen again to $19.2. But when it became clear that FTX had stopped withdrawals, and that Binance’s availability was contingent on a DD that has yet to be done, the collapse began again.
Especially regarding market concerns, Gracy Chen, Managing director of Bitget, commented:
“The main concern caused by this event is not just about the fight itself, but also about how the users’ assets are kept under the custody of the exchanges and other financial institutions. This, to many investors and users, is a familiar clue for risks or crashes and has caused panic in the market. The coming release of the latest US CPI inflation data would be an essential observation point. As the risks and impacts of this event between Binance and FTX have been factored in, and if there’s no other negative news comes out, hopefully, the market may rebound.”
FTX’s problem and FTT’s crash, Binance runs to the rescue
The major problem that plagued the FTX exchange yesterday was the suspension of withdrawals.
At first, it seemed to be just an extreme slowdown due to the huge amount of requests, but later it was discovered that internally there was a provision to temporarily suspend withdrawals altogether.
However, there was a slight disparity in treatment between FTX.US users and those on the global platform, even though liquidity problems obviously plagued them both.
The key point is that FTX did not have all the funds on hand to meet all withdrawal requests in real-time. As a matter of fact, the doubt is that it may not even have enough among those invested.
CZ himself commented on the matter, saying that you should not use a token you have created as collateral, and that you should not go into debt if you are running a crypto business. He also added that crypto businesses should always have a large reserve on hand.
Two big lessons:
1: Never use a token you created as collateral.
2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
Stay #SAFU.🙏
— CZ 🔶 Binance (@cz_binance) November 8, 2022
The most curious thing is that some time ago the co-founder and CEO of FTX, Sam Bankman-Fried (SBF), had stated that there were already some third-tier exchanges that were secretly insolvent.
Yesterday, however, he had to admit publicly that the help offered by Binance was crucial.
4) A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry. CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world.
— SBF (@SBF_FTX) November 8, 2022
The future of FTX
Right now the future of FTX is uncertain, both in terms of the US platform and the global platform.
The biggest problem seems to be related to the possible bankruptcy of the Alameda Research subsidiary.
Indeed, the company run by Caroline Ellison has been using FTT tokens as collateral to obtain loans, and now that these tokens have lost more than 80% of their value they will no longer be able to guarantee the full amount borrowed.
Moreover, Ellison herself remained silent on Twitter yesterday, refraining from even trying to reassure the markets.
FTX.com could be bailed out by Binance, should the DD yield positive outcomes. As for FTX.US at present, it seems hard to imagine what would really happen to it, while as for Alameda Research, many now give it up for dead.
It is not even clear yet how the withdrawal requests still pending on the exchange, or those that may yet come, will be handled. Unfortunately, the company does not provide much public information about this, although it did state yesterday that the queue of pending withdrawals is shrinking.
a: we want to thank our team for working tirelessly to process the backlog of withdrawals. See here for context:
https://t.co/fbg2ifBNzHqueue is decreasing and getting back to more reasonable levels; nodes and banks catching up
— FTX (@FTX_Official) November 8, 2022
This is probably also why the price collapse of the FTT token at one point yesterday came to a halt, even rebounding slightly overnight.
The crypto market
The crypto market as a whole did not react well to this crash. Though at least the price of Bitcoin fell only a little below the annual lows of June, without plummeting further.
Exemplifying this is the performance of Abracadabra’s MIM (Magic Internet Money) stablecoin. In fact, it is a stablecoin of which part of the underlying collateral is in FTT tokens.
Yesterday before the collapse its value was less than $1 ($0.99), and during the collapse, it fell as low as $0.96. However, after about four hours it had already recovered parity with the dollar, indicating that the blizzard was beginning to blow over.
In other words, the fear yesterday was there, and it was strong, but it lasted only a few hours. However, it was enough to send the crypto markets back to the yearly lows touched in June, but without inflicting further damage.
Binance’s strategy
The most astonishing thing about this whole affair is that it seems to have been Binance that initiated it.
This has led more than one person to think that it may have been a strategy from the beginning to take out a competitor. FTX was one of the top five crypto exchanges in the world, whereas now it is in danger of disappearing. Binance, on the other hand, is not only the top crypto exchange in the world, but is now the leading power in the crypto markets globally.
However, it is also worth noting that SBF’s strategy seems to have been rather unsuccessful, and CZ could simply have taken advantage of it.
Source: https://en.cryptonomist.ch/2022/11/09/binance-wants-acquire-ftx-ftt/